Credit Advice

The impact of tax liens and why credit cards aren’t slimy and evil

Have a question?

Do you have a question about consumer credit? You may find an immediate answer by using the search
engine. If you can't find what you're looking for, please fill out the form, being as specific as
possible.

Please note: The Ask Experian team cannot respond to each question individually.
However, if your question is of interest to a wide audience of consumers, the Experian team will
include it in a future column.

Our policies
The information contained in this column if for educational purposes only and is not legal advice.
You should consult your own attorney or seek specific advice from a legal professional regarding
your particular situation.

Please understand that Experian policies change over time. Column responses reflect Experian policy
at the time of writing. While maintained for your information, archived responses may not reflect
current Experian policy.

The impact of tax liens and why credit cards aren’t slimy and evil

Dear Experian,

I am in the process of resolving tax issues and liens. When these are paid, can I expect my credit rating to go up? If so, what should I expect?

Also, I currently have no credit cards (thinking them evil slimy things) but have recently read that one should have two credit cards that report to the big three credit reporting companies and make regular purchases (as well as immediately paying them off) in order to raise one's score. Is this true? Should I bite the bullet and delve into the realm of plastic?

- RAI

Dear RAI,

Tax liens do appear on your credit report and have a very negative impact on credit scores. Unpaid tax liens can stay in your credit history 15 years  longer than any other negative item  so it is important to pay Uncle Sam.

Paid tax liens will remain on your credit report seven years from the date they are paid. That means credit scores will improve, but maybe not a lot right away. As the paid tax lien gets older, its negative impact on scores will usually decrease.

Credit cards are not evil, and they are certainly not slimy, but they can be tempting to misuse, and that is what gets people in trouble. It is a good idea to have at least one credit card, though, because revolving accounts are very helpful in building a strong credit history. It is impossible to say exactly how many credit cards any one person should have because that depends on each individual’s unique credit history.

Credit card accounts are called revolving accounts because you can carry over the balance from one month to the next, or revolve the debt. That is what makes credit cards so valuable in assessing an individual’s credit risk.

Unlike other types of debt that have preset payment amounts and scheduled payoff dates, credit cards leave the amount of debt you have and how much you will pay open, within some limits. You decide how much debt you will have and how much you will pay each month.

How much you charge and how much you pay – the minimum payment, the entire balance, or something in between – is entirely up to you. That freedom to choose gives lenders tremendous insight into how you make credit decisions and how well you manage your debts.

It is not essential to pay off the entire debt each month, but I strongly advise doing so if possible. A low balance-to-limit ratio is a key factor in risk scores, so as a rule of thumb the lower your balances, the better. More importantly, you will pay interest if you carry a balance to the next month, and interest rates can be very high.

So, yes, I recommend that you “delve into the realm of plastic.” Just don’t go on a full-blown crusade. One card, or two, is enough for just about anyone.

What it really takes to build a strong credit history, and to have good credit scores, is wise credit use and patience, not a specific number of credit cards or carrying a specific balance.

Experian and the Experian marks used herein are trademarks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the property of their respective owners.